Now you know why I try my damnedest not to comment on the political.
However, with that said, as a business person you just can’t sit idly by and wait. You have to try and “read the tea leaves” the best one can, and try to interpret what may, or may not, be coming down the pike, and how it might effect your business. It’s part of the “game” as they say.
The issue now facing not only the administration along with congress itself is this point…
If this jostling of positions continues, while at the same time, congress remains both deadlocked on getting any prominent relief for taxes and more passed? Things are going to turn ugly – very fast – and very soon. And I don’t mean political infighting. I’m speaking directly to the business sector.
Congress sitting on their thumbs is one thing – business sitting on its hands is quite another.
Calls on the impending doom for when “the end” will be upon us has been going on as long as the “beginning” itself. In other words – the moment it all started – someone began calling for it all to end. It’s the human condition. You’ll find it everywhere, it’s not solely restricted to the varying religions.
Yet, when it comes to business, there are signs that should be heeded when they appear, that should cause one to sit up, and take notice. Today, one has appeared; and the ramifications of what it portends may indeed mimic what many take as “the sign” that the apocalypse is truly upon us.
This final sign isn’t “a rider on a pale horse” signalling the end of times for humanity. No, but the similarities are quite striking, for the way I would describe this revelation is this: a venture capitalist riding a bloated, sickly unicorn, thus signaling the impending end of “it’s different this times” has surely arrived – once again. And the resulting devastation (once again) Will. Be. Legend.
I have written too many times to list my views when it comes to the entire “Valley” or “tech” mindset, and how it behaves in respect to business fundamentals and more. i.e., Basically, it doesn’t respect business fundamentals at all.
It behaves and acts as if it’s its own religion or cult. i.e., “You gotta believe! And when in doubt? Seek the good-book of Non-GAAP, and have all those misgivings put to rest. For remember the code: Get funded – get listed – get out. Then bathe and repeat. For remember – you are coders! So go forth and code; so that you may reap the rewards that surely await you in the lush green “Benjamin” lined valley known as Wall Street.”
Yes, all tongue-in-cheek, but is it really that far off? For those who think so, let me give you one last example of this “devotion to the Valley model” and you decide. Ready? Today, in Silicon Valley – LinkedIn™ – is still considered a stunning success. (excuse me while I finish laughing)
For those of you that bought into that “success” right before its stock value plummeted; prompting Microsoft™ to buy it (i.e., throwing stock-optioned employees a life savings lifeline) before it fell even further to where competitors may have been able to afford it? “Success” is not the first word that comes to your mind, 401K, or bank balance.
But in “The Valley” world – “remember the code” – is all I’ll say to that.
So back to where I started, and why the above needed to be stated for context, and it is this…
To my eye, or acumen, this is very similar to that moment where suddenly a boss, a team leader, a company, ________ (fill in the blank) does that one thing, and everyone around them looks at each other and thinks “Wait…What?” Then begins questioning everything prior.
We’ve all been there, or had that moment. Silicon Valley I believe just had its own.
Over the month of July questions are beginning to be asked about not only the rate of unicorns being minted, but also the totaling amount that its current “top ten” stable mates are valued at. Here’s some data as reported via Pitchbook™. To wit:
“WeWork’s latest round, a massive $760 million funding reported earlier this week, has increased the valuation of the co-working space provider by about $4 billion.”
What is getting everyone’s attention in “the Valley” is something I’ve been stating for years, only this time, it’s the sheer size of the claim, in one jump, that’s causing consternation within its once undoubting, ever-faithful, cheerleading pews.
Remember: Only in “The Valley” is it reported on, and accepted as an article of faith, along with a straight face; that a VC can turn a few $Million into a $Billion all based upon a standard of accounting equivalent to: “Because that’s what they say it is.”
Try saying that at your local bank if you’re trying to re-fi or buy a house. See how far you get. Yet, in “the Valley?” You may get “that loan” based on that “$Billion” stated on your balance sheet. Which is precisely why I bring this up.
Again, it isn’t the “accepted” math that was/is in question, (e.g., The alchemic miracle of accounting allowing $millions to now be claimed as $Billions) but rather, it was the size of this jump (e.g., $4 Billion) that the math allowed for, leapfrogging this company into the #3 position of all unicorns with a valuation of now $21BILLION.
Now, suddenly, eye brows are being raised. (To be clear: I’m not taking shots at those reporting these latest stories. I’m talking directly to the entire complex concerning Wall Street, main-stream business/financial media, along with the entire “Valley” apparatus at large.)
The issue in my opinion is – it’s too late. For this “unicorn’s” ability to prance into third place wasn’t ever going to be some sign of salvation for “The Valley” model. It’s quite the opposite. In my opinion: It’s the “fourth” equine maneuvering into position in the ever evolving “tech” apocalypse.
If one wants to draw similarities via the “Four Horsemen” (which I am) Twilio™ was the first sign, Snapchat™ the second, Uber™, its third, and WeWork™, I’ll dare say, just maybe the fourth. And the “scythe” is about to be put forth cutting down far more than just valuations as it unfolds. Look to the ancient scrolls of the dot-com era for clues.
Let me add this one construct as to why I believe the crossing or “investing” by VC’s into the unicorn club is not showing a sign of “strength” or “faith” in the current “tech” sector, but rather, resembles a last-ditch effort of desperation to keep that other article-of-faith alive because if that goes – so too does all their presumed wealth. e.g., Their own statements of net-worth.
Let me propose the following on you, and see what answers you come up with on your own. Ready?
If you had extraordinary gains currently sitting in an index fund (Oh, let’s use NASDAQ™ as a hypothetical shall we?) and you were a VC, or you just decided that’s what you want to now be: Would you not take some gains off the table in that fund, and put a few $million into some start-up that allows you to now declare you’re worth a $Billion or $BILLIONS?
Think about that very carefully, and come to your own conclusions. Never mind what I think.
Now with that as a backdrop let me ask you this…
Do you think unicorns crossing the $BILLION dollar valuation mark at a clip of 1 per week currently – in this environment, with what you’ve currently witnessed to those who’ve made it out of the stable, only to have its valuation slaughtered much more in line with a glue factory rather than a land of milk and honey: what would be making the argument (or giving the rationale) for one to invest $Millions when the most recent IPO’s are shedding $Billions a a frightful pace?
Again, think about it very carefully. What would you do? And why would you put that money at risk? Hint: The accounting alchemy of the Unicorn-verse.
And that brings me right back as to why I believe this latest “bump” in valuation and funding has caught even the once unquestioning faithful off-guard. And it’s this…
If you are a VC, or early holder in the likes of Uber™, or Theranos™, or Snap™ et al. And your personal holdings, or “valuation” seems to be taking a hit in the eyes of, Oh, I don’t know, let’s say: Your bank or brokerage account? And maybe you just so happen to have taken loans, or were awarded special financing deals that were only available per all that reported net worth “value.” How would you make up for that discrepancy?
Hint: Like the legend of turning water into wine – one appears to still be able (but it’s losing it’s once unquestionable status) to turn $Millions into $Billions via the unicorn legend, at a pace of about 1 per week.
But when you go for a quadrupling? That’s a 4-horse one should never have tried to ride, even in front of the faithful. Because even the “faithful” know or have heard of the prior apocalypse of legend. e.g., The dot-com era.
It’s all right there in the ancient scrolls. I think it even states: “And one of the riders was a sock puppet…” But that’s just from memory. But, we’re always told “it’s different this time”, right?
Well, it surely appears as such, for remember when using “The Four Horsemen” was evangelized as a good thing – until suddenly – they weren’t? For those who like to read the ancient scrolls of the dot-com era. Here’s a sample.
And for those who think making it out of the unicorn stables, and then running their valuations up at a full gallop past all those non-beleivers to the unqustionable land of $100’s of Billions in market cap affords some form of absolution from reprisal? Here’s a reminder, as well as warning. To wit:
But I’m told by the “faithful” Facebook™ and Twitter™ are different. As I always say…
In it I argued there was one simple question concerning the entire “ads for eyeballs” complex. That question was this…
“If there’s demand for something, and it’s effectual: Why are prices falling?
Advertising is not something that follows the “commodity” pricing model. Worthless advertising does, but not effectual.”
That was in direct response to the 300% comparative loss of value per click on Google™ from the same time the year prior. e.g., -7% in 2016 to -23% today. Yes, that’s a loss of triple the amount just a year prior. But the total number “clicked” actually rose over 50% boosting the total revenue higher.
I used the “300%” figure to bring attention to that discrepancy for a reason, because most people I spoke with glossed right over that point and only heard (or read) “revenue increase.” The issue with doing that is – if you don’t understand the how, and why that make up the numbers, it’s easy to fool yourself ( or allow yourself to be fooled) into believing it represents one thing, when it actually, could mean quite another.
If you think I’m only trying to play “fast and loose” with the numbers myself, I would like to have you think of it this way using the following…
If the report was an increase of net profits from 7% to 23%. Do you think the next-in-rotation fund manager cadre would say “That’s a 16 percentage point increase in net profits!” Or, do you think you would hear something along the lines of: “That’s triple the amount expected! My friends that’s a three-fold increase or, if you will, some 300% gain in profit per click from the year prior. There’s no stopping this money train, get aboard now!!!”
See my point? i.e., 7 X 3 = 21, that’s “triple”, and/or “300%” is also another way of expressing triple. When it comes to marketing – it’s all about how you want to spin it without outright lying. That’s why you need to know what, and why, certain expressions are being used. Especially when it comes to anything concerning Wall Street, for it’s also – what you don’t hear – that should also cause you to look closer. And it’s exactly for that reason I used it myself. Because it caused the reaction I hoped it did when I said it. i.e. “Wait…What?”
With that said, here’s why knowing what the “numbers” being reported may, or may not, represent is paramount as I stated in the article. To wit:
“So here’s why this is important: It is currently an accepted meme that both Google, as well as Facebook, are garnering most of the mobile ad dollars via the game of attrition. In other words, as advertisers pull their ads or campaigns from differing venues that have shown to be ineffectual, they are either moving some of those dollars there, or back to older venues such as TV or radio. And in some cases neither, in an effort to stop the hemorrhaging of throwing anything everywhere with little to nothing to show for it – except big ad bills.”
Because now we move on to both yesterday after the close of the “markets” report by Facebook™, and today’s before the opening bell reporting of Twitter™, and see if any of what I argued using the Google construct fits.
I went out for my usual daily run yesterday afternoon as Facebook reported. When I returned I was besieged by notes and calls from friends and colleagues asking me (more like ribbing me) about what I thought of the “amazing beat!” And if I wanted to “rethink” my position when it comes to social-media (and Facebook in particular) with such obviously “crushing it” type numbers.
My answer as usual was “No.” However, I did have to agree the report was impressive no matter how one looked at it currently. And that’s the key word “currently.” Because after I began looking deeper into it, and once Twitter announced this morning? My original “no” went to “11” as in “H#ll no!” Here’s why…
Yet, what caught my eye were two things I have been arguing for quite some time in response to ad revenue for Twitter rising going into the end of the year. (e.g. Q2 – Q4 2016.) The most common explanation was that Twitter was getting better and revenues were going the right way because of better execution and more. I doubted that reasoning entirely, in fact, I said on numerous occasions:
“I believe all this buying in social is a consolidation process where advertisers are going to concentrate and throw everything they’ve got in one last pitched effort going into the holiday shopping season.”
Guess what? Not only have ad revenues reversed since the holidays – they’ve now undercut YoY comparison by some 14%. But that’s not all – their actual user base in the U.S. has now begun to shrink. That’s not a good sign for the entire social complex in my opinion. Let alone, for any “turnaround” hopes.
So if we weigh the above with what Facebook reported is there anything to extrapolate? I believe there is, and it comes from Recode™. To wit:
“Facebook has been warning investors for the past year that its revenue growth would slow “meaningfully” in 2017 because it has finally run out of places to put ads in News Feed.
So far, that slowdown hasn’t really happened. At least not meaningfully, though year-over-year revenue growth has declined each of the past four quarters.”
Yes, you read that correctly, YoY revenue growth has actually declined, and declined sequentially. That’s a metric that’s going in the wrong direction when what’s seen as “all the competition” is collapsing simultaneously. At least when it comes to their share of the “ad pie” that is.
Now piggyback the above with what I’ve iterated ad nauseam e.g., “I argue we’re currently in a consolidation process, which is exactly what I would expect if we are indeed in the latter stages – before it all falls apart.”
I am of the opinion Twitter’s latest report, along with Google’s are proving that argument out. Not to mention the IPO disaster still unfolding.
So where do we go from here? Well, nobody really knows. However, here lies the issue today – and is this:
What happens to Facebook the moment advertisers no longer consolidate, and just decide to just stop throwing money into what is increasingly appearing to be nothing more than some black-hole or drain, with little to no results to show for it – except the bill?
After all, it was only one reporting quarter ago that the CFO of Facebook himself stated as to warn he expected a “meaningfully” slowdown in ad growth “particularly pronounced as we get into the second half of 2017.”
Was this quarter just the result of being the final of last-ditch efforts to throw the remaining ad budget against the “wall” and see if anything sticks? And if it is?
See Google, Twitter, and all the others current price action “pictures” for clues.
I was asked by a colleague the other day if I still held firm to my thesis when it comes to Mr. Scaramucci, along with the Fed. which I laid out on Sunday in light of what was reported on Tuesday via The Wall Street Journal™ that Mr. Trump, “likes” Ms. Yellen and, “thinks she’s done a good job”, has “a lot of respect for her”, and would consider reappointing her saying, “She is in the running, absolutely.”
My answer was yes, and here’s why…
Although the optics of the above statements seem to not coincide with my original thesis at first blush. If we look at it a little deeper, or differently, there may be more too this than what a casual observation may not catch. One of those is this…
Is it not funny how coincidentally Mr. Trump just so happens to be parading around with Mr. Cohn in front of the press as the Federal Reserve convenes its latest meeting? And how about his answers? Sure he lavished praise on Ms. Yellen at this moment, but if you think that can’t change faster than a New York Minute? See U.S. Atty. General Jeff Sessions current presidential endorsement for clues.
What was also quoted is the following which directly followed all the above praising. To wit:
” I’d like to see rates stay low. She’s historically been a low-interest-rate person.”
And it is those two sentences which are the money quotes (in my opinion) to the entire article. For what Ms. Yellen, along with the entire Fed. apparatus is now embarking on, is anathema to what the president would like to see. And, one could easily assert – expects to continue.
Problem is – It ain’t.
I would suggest that the walking of Mr. Cohn in-front of the press during a Fed. meeting, all while having the niceties for the current Chair at the ready, while also having by his side an immediate (as implied) replacement should he desire – was a shot across the bow, if you will, to the Fed. that he is ready to make changes, and, immediately if he deems it. For he has “others” he’s also currently looking over for a potential Fed. position.
He made sure that was also known. Of course one could say “But of course there are others!” However, if one wants to be cynical or extrapolate deeper – maybe it’s not just to replace the Chair in isolation. There are other vacancies at the Fed.
What I infer about what “others” possibly could also be to my ears? He may be openly implying: he’s not only actively thinking about it, rather, he’s also thinking about precisely who, and he’s doing that – right now. i.e., Skullduggery 101 – veiled threats for others to take note of. Because words and optics in the political power world matter. There is no “coincidence.”
I could be totally off base, and of course, this is all conjecture on my part (as was my original article.) But there are times the only way to see over the horizon – is to step forward onto the horizon yourself and see if things change so much as to give one pause. To my eye – they have not.
Doesn’t mean I’m right, just means there are things at play, and maybe falling into place, that signal one should continue to pay very close attention for any further developing clues. Because just when you think it’s smooth sailing and not a cloud in the sky. Suddenly…
You’re in the storm of your life fighting for survival.
And yet there was that fly-in-the-ointment as they say, that seemed to make the report not as “terrific” as one would think at first blush. The “fly” is the current: cost per click.
For those not that familiar with the term, this is basically how the “eyeballs for ad” model gets paid. Or said differently – this is what advertisers pay to the company when you click on their link. Pretty simple model, but it is the model of the entire internet as most now know it. Without it, the internet, as well as the companies that serve it up as it is currently known collapses. Yes, it’s that important, and with that importance comes a very simple question…
If there’s demand for something, and it’s effectual: Why are prices falling?
Advertising is not something that follows the “commodity” pricing model. Worthless advertising does, but not effectual.
If you can provide hard numbers that are both empirical and guaranteed, with some form of accuracy? Advertisers will pay up. Period. No advertiser or sector group is going to allow effectual ads to be had by their competitor if it’s proven to be effective. Sorry, it just doesn’t work that way.
So here’s why this is important: It is currently an accepted meme that both Google, as well as Facebook, are garnering most of the mobile ad dollars via the game of attrition. In other words, as advertisers pull their ads or campaigns from differing venues that have shown to be ineffectual, they are either moving some of those dollars there, or back to older venues such as TV or radio. And in some cases neither, in an effort to stop the hemorrhaging of throwing anything everywhere with little to nothing to show for it – except big ad bills.
Looking at the reported results for Google ad clicks they surged 52% in Q2, but yet, the cost (or what Google charges advertisers) dropped 23%. To put that into perspective: That is more than triple, or a 300% increase in value lost compared to the exact same time frame one year ago. (e.g., -7% to now -23%) To wit:
(Source noted above)
And yet – “clicking” surged 52% this last quarter. This just doesn’t make any sense with what is currently revolving within the economy, and especially when large-scale advertisers are not only threatening to pull ads because of their ineffective results, but are also doing it based on lack of transparency for how and why their ads (which they are the ones paying for) are being clicked on to begin with.
(Just as a reminder: the raison d’être for this entire complex was their knowing every data point with near, if not empirical, certainty. Just don’t ask, or expect, to see those details, especially if you’re the one paying. But I digress.)
I’ve made my opinion quite clear of this entire complex far too many times than needs to be listed. But just to be clear to those who may be reading for the first time: I am of the opinion we have now entered the latter stage before this whole “ads for eyeballs” complex comes crashing down in similar fashion to the dot-com era.
Yes, I am stating that a 52% INCREASE in “clicks” should be taken as a warning sign when put into proper context or reasoning, not what is now being touted by the cadre of next-in-rotation fund managers or “Valley” aficionados as “Great news! They’re killing it!! Buy, and buy more!!!”
Personally, I believe just the opposite, and the way I’m interpreting the numbers (along with my prior acumen in advertising) hardens my resolve for that stance, not weaken it.
Again, the entire complex of “ads for eyeballs” is already falling apart and the signs are everywhere. Hint: Remember when unicorns were the mythical beast to riches via the “ads for eyeballs” model? So what does it say when a once touted unicorn (Rocket Fuel™) that sells those very ads falls from the sky so hard it’s about to be acquired by another in hopes this deal might itself return it to profitability? e.g., Sizemek™ acquires it for $145 million. in 2013 Rocket Fuel IPO’d at $29 – it’s being acquired for $2.60. And I didn’t mention that the acquirer itself was just purchased a year ago for a little less than half its prior year value. (e.g., $74 million down from $150 million) Oh, and hows Snapchat™, Blue Apron™, and others doing? Too soon?
Just a thought (because thinking is precisely what seems absent when it comes to anything tech) the reason for all these “increases” that result in needing to “decrease” the asking price might have to do with something like the following. To wit:
That’s a story that involves a Russian that should really be making headlines everywhere. But then again, that would be bad for the “clicking for profits” business, wouldn’t it? Let alone – the next-in-rotation fund-manger business.
An entire complex revolves around the answer to that simple question. But I feel the answer is already known – just no one yet will dare admit it.
Since the Great Financial Crisis of 2008 there has been one consortium responsible for the current valuation of the stock market: Central bankers, and in-particular the Federal Reserve.
So adulterated have these once enviable capital formation repositories become that the term – markets – now has to be used in the following manner: “markets.” For what they now represent is further away from reality of anything resembling true price discovery, than Alpha Centauri is to Earth. i.e., The distance is near unimaginable.
The true problem with all of this over these years has been the central banking cabal itself, and its sheer indignant stance or responses when anyone dared question the efficacy of their interventionist policies. Even though, as history shows, it has been central bankers themselves that have been the ones most thoroughly blindsided by the resulting chaos that developed in regards to their prior policies, which by-the-way were enacted in response as to “fix” prior errors. Think: Great Depression, Dot-Com Crash, Housing Crash, et cetera.
The real problem of today is that we’re now in an era where it appears by all objective reasoning that central bankers have moved from “guardians of the money supply” to: an unelected cabal instituting what they believe national governance or policy should be via the printing press as either a blatant incentive, or bludgeoning weapon.
As I’ve iterated before: at no time has more authority been handed over to an unelected body that has the power to control not only the economy, but who gets what, and how much, since the days of yore reserved only for Kings and Queens via their blood lines. Today’s “bloodline” seems eerily similar. i.e., Ivory Towers and Ivy Leagues.
However, there now seems to be something on the horizon that I feel the Federal Reserve is once again going to be blindsided by, for its coming from an area (and I’ll dare say adversary) from which the Fed. has never truly had to play, let alone, defend itself against. That “area” is the Oval Office.
There’s a lot here and far too much to try to cover in a single article, so pardon me for being general in terms, but for this discussion general is all I believe one needs to understand and possibly connect-the-dots as to where things may be going.
First: let’s tackle the big brouhaha about Mr. Trump claiming responsibility for the current market highs. If one peruses the media it’s hard to not see any article implying “He now owns it – and he’s going to regret it!” Personally, I believe that’s short-sighted because in actuality; it is at these heights for only one reason: “The Trump Bump Hopium Trade.” i.e., What was believed as a near slam dunk (e.g., GOP now controlling all three houses) for getting not only Obamacare repealed, but tax cuts, regulation relief, and more.
The rise since the election has been in spite of not only current Fed. actions into continuing abysmal data, but also, in rejecting the impending effects of that very same data. In other words: There is absolutely no other reason for the “markets” to be where they are currently except in response to the “Trump Bump of Hopium.” Below is a chart showing exactly that “bump”, along with another detail which needs to be remembered. To wit:
As one can see on the above chart I highlighted (shown in the square) what the “markets” response was to the reality QE was no longer. i.e., Direct QE that is, for the roll-over or reinvestment process behind the scenes QE remained in full force, and then some. Supplying all the necessary “dry powder” for their preferred entities to buy any – and all – dips.
Again, for this point needs to be asserted: the markets have not only continued to rise, but have mirrored the prior accent when QE was in full effect, all while the Fed. has embarked on a tightening schedule unseen since the crisis along with putting into its “forward guidance statements” that it is not only going to reduce the balance sheet, but has given a schedule where that process should be construed to possibly begin at any day, releasing the biggest bugaboo fear of Wall Street, bar none.
And the “markets” have so far resisted (actually gambled) putting more faith into the “hopium” trade than the Fed’s resulting actions.
But that was then, and this is now, and things have changed markedly. And it is the appointment of Mr. Scaramucci which I believe signals far more of that “change” then most suspect – especially – The Federal Reserve.
A lot of the so-called “smart crowd” are assessing the change in the Trump administration as some form of chaos, or proof that its falling into disarray. I believe that observation to be naive and ill-informed. Why? As I made the case early when the President was first assuming the role and people were reporting their consternation on why he was doing this, and not doing that. From the article, “Why Is The Media Perplexed? Because This Is What Business Looks Like – And They Don’t Get It”
“People forget that he’s a billionaire or successful businessman today for one reason, and one reason only: He is a proven turnaround specialist.
That point gets lost on a lot of people. They forget he has been not only “on the cliffs edge.” He’s also been over it. Most don’t recall, or never heard about the exchange he revealed in one of his books between him and his daughter when he spotted a homeless person and he pointed out as to make an instructive lesson to her (paraphrasing): “See that homeless person over there? He’s worth a $Billion dollars more than I am right now.”
He wasn’t being coy – he was telling the truth. People forget just much financial trouble he was in during that period. It was a turnaround worthy for entry into the business textbooks. Personally, I’ve taken cues from it over the years.”
Why the above is instructive is this: He (or his administration, if you will) is precisely six months into it. And what has he got to show for it? Nothing, except for the actions he could do alone. (e.g., executive action) And this is where people who’ve not only been over the edge, but who’ve fought back and survived show, along with further prove, their mettle is far more resilient than most.
All the so-called “help” that was supposedly at the waiting (e.g., the House, Senate, and more) has given nothing but lip-service to previously agreed upon legislative actions. e.g., Passed repeal of Obamacare dozens of times when it was sure to be vetoed. But now where it would be signed? All they can agree upon is to now disagree, with their prior agreements.
Let me be clear: I am not endorsing nor reprimanding one political side or the other. What I am doing is trying to point out what is the current reality and meaning for it, along with how it may affect not just business, but the entire global economy going forward. And how one might use these observations to either buttress, or at the least get one to think about what might be coming down the pike – before the hooves begin racing down the alley.
Again, whether or not one agrees with the President one thing is above reproach, as I stated prior: He’s not only been to “the edge” – he’s been over it, and clawed his way back to the top. Steve Jobs did the same, as have others. (I’ve been there albeit at a different level) And it is here where things not only from a business perspective change, but also in others, in ways most have no understanding.
It is from that viewpoint I have now deduced that Mr. Trump has now fully, and with intention, removed any and all gloves – and is about to not only come out swinging further, and harder. He might land blows others never dreamed forthcoming. Especially with the Fed.
The Scaramucci appointment particularly piqued my interest in its timing for two reasons. First: This is very typical in a turn-around situation if you’re at a 6 month point. i.e., evaluate prior assumptions and actions for efficacy, and jettison any and all that proved to be ineffectual – with immediacy and certainty.
Unlike the Fed, which prefers to stay away from politics and has largely skirted discussion about the impact of Donald Trump’s economic policies, the central bank’s community council did not shy away from taking issue with the president’s proposals.
“While capital markets have shown continuing signs of strength, recent budget proposals and executive actions by the new administration, if enacted, would severely constrain capital flow into low- and moderate-income communities,” the Fed’s community council said.
If there was ever any question that the Federal Reserve has inserted itself into the political strata it is now laid bare via their own words.
Reading just Mr. Nicolaci de Costa’s breakdown of it is well worth the read. Did you know “climate change, health care, affordable housing, immigration” and more are now a focus of the Federal Reserve? So much so has its own committee to put forth its findings?
It’s been around for two years and was created as some form of PR vehicle to counter criticism. But suddenly, now it wants to be heard as to offer it. And the topics are of the political. Funny how that happens, no?
Here’s where I believe the Fed. has now overstepped so much so – it’s putting light where it once wanted to do things in the dark. And the Trump administration, especially Mr. Trump himself, not only knows it, but can see it coming a mile away. i.e., The Fed. is now openly waging “war” for control, and inserting itself into, and against the White House via monetary policy as to cripple it – if not worse. All while using arguments and reasoning reserved for political strata.
Or said differently: The Fed., an unelected consortium of policy wonks has now openly declared what it deems “politically important” and is good for the electorate or global community, thus influencing (a given extrapolation) and conducting monetary policy for those desired political outcomes.
Don’t take my word for it. Read the reporting and report for yourself, and come to your own conclusion. It’s actually breathtaking in its scope once you do.
As I stated in the headline the appointment of Mr. Scaramucci should give pause for the Fed inasmuch as when backstopped against the President’s own latest rebuttal of congress itself the other day.
Mr. Trump in no uncertain terms lambasted his own party in a manner not seen in generations. i.e., He put the blame squarely and empirically on them in no uncertain terms, with no place to reason away his assertions. e.g., (paraphrasing) “Where’s the legislation you passed when it was sure to be vetoed which you ran on, and promised to pass, should you and I win? I have my pen in hand, where is it?!”
These are the types of in your face rebuttals that come from people who no longer care about how something looks to others, or if feelings are going to be spared. This is now all about results. A fundamental “turnaround” process and distinction. (Think Jobs when he wasn’t getting the desired results from his subordinates, or was being openly questioned via Wall Street. It’s not that dissimilar.)
This is critical because if there is no “Obamacare” repeal, something which was supposedly a given – tax cuts and more are not just DOA, but possibly dead and buried. And these are the reasons for the “Trump Bump.” Period.
Add to this the forthcoming debt ceiling debacle that is sure to take place, along with all the negative press that will come pouring out from every mainstream media outlet, coupled with the ever-increasing resonating effects that the Fed. has not just raised the costs of borrowing on the nation at a faster rate than they ever signaled ( so much for all the forward guidance) but rather, into increasingly deteriorating data far worse (both in cycle timing, as well as for a supposed “data dependent” body) than the many times prior (such as 2011, 12, 13) when they sat on their hands as the “markets” overtook the prior highs of the original crisis exacerbating an already evident growing bubble.
The issue for the Fed. is not that this “blame” or “spotlight” will be regarded to just some “tin-foil hat wearing, conspiratorial crowd” as they’ve been referred to by the Ph.D set. No, the reason why Mr. Scaramucci should ring alarm-bells for this set is because he, unlike most of his predecessors, will be able to frame and articulate that very same argument squarely, forcefully, an unabashedly directly onto the Fed’s shoulders in a manner and extreme I believe they’ve never encountered. And it will leave them literally dumbfounded on how to react or respond.
I am also of the opinion any, if not all, blame for any ensuing faltering, or heaven forbid, any true correction in the near term will be thrust so directly and vehemently at the Fed. their reputation in the public eye will quickly go from some form of “saviors of the economy” they like to believe of themselves – directly to where the masses begin to look as to where to bring the torches and pitchforks.
Again, I am of the opinion this new iteration of the White House communication staff and players are not only willing, but capable of doing just that. And not by using lame constructs and reasoning like those of the Ivory Towered set. No: the most effective, as well as volatile ammunition that will be used will be the Fed’s own prior words and reasoning.
It will be their own words, actions, and more that will be regurgitated as to come back and “bite” them. i.e., One example is Ms. Yellen’s own “high pressure economy” argument just this past October vs her policy stance and actions to date.
A lot of people have mocked the idea that Mr. Trump has unwittingly taken claim of the current rise in the “markets” as to be an anchor around his presidency, let alone, neck. However, if looked upon objectively – it might be the singular weapon he can use to show against all odds – the “markets” since November rallied for one reason, and one reason only: what his presidency was believed to be bringing to the table as in repeals and tax reform.
All in spite of Fed. actions to the contrary.
And now with the GOP falling short of what was expected and the president willing to call them out for it in no uncertain terms? I surmise the only ones whom think they’re not next is the Fed. I also believe they’ll not need to wait too long for it to begin in earnest. After all – it’s not like Mr. Scaramucci doesn’t know these arguments for himself.
And here is an important observation: He’s not there because of any “love affair” or “political payback” for loyalty. Far from it.
In actuality they’ve (Mr. Scaramucci and the President) been adversaries via Mr. Trump’s vanquished opponents. And yet – there he is now. There’s a reason for it. I’m of the viewpoint it’s because of Mr. Trump’s now unmistakable pivot to taking the gloves off entirely. And I have a feeling it’s the Fed. that has now entered into these newly acquired crosshairs.
American’s love a fighter, especially one who seems to have their interest at heart. What far too many believe is that these latest impasses are hurting Mr. Trump politically. Far be it. The harder he fights – the stronger his base will not only get, but grow.
This is anathema to what the political class understands. And with Mr. Trump coming out swinging as he did in that latest press conference, along with his latest barrage of tweets bring back to light obvious one-sided dealings for political, if not legal hypocrisy. One should take these as not just clues, but rather obvious manifestations as to leave little to no doubt how things are going to be handled going forward.
And once again I feel the Fed. is about to be blindsided in a way they never dreamed imaginable. e.g., From the real Bully Pulpit.
Not long back I made mention of a phenom which I’ve come to label as: future-hype. What this term means is what I describe as the now near comical press releases, CEO jawboning, or anything similar that takes place right before earnings (usually a week or so, give or take) either from “The Valley” or tech space in general.
Usually what you’ll read, see, or hear (and echoed jubilantly by some next-in-rotation fund manager) is some grandiose announcement of some super-duper, sounds really awesome, coming attraction that has the potential to not only change everything, but also, to fill investor coffers with riches beyond the imagination.
All one needs to do, as to engage and embrace in this vision, is to use their own imagination, then buy into the “dream” with real legal tender, literally. Because, without those investor dollars continuing to pour in? The “dream” as they say – will be lost. Along with any earlier proceeds. Rinse, repeat.
Why is the above relevant? Fair point, and it is this: It sure is a nice thing to be able to bring access of the internet to – BILLIONS!
(Remember that “eye-balls for ads” model is the key, and this offers up the main course for the headline reading algos’ to feast upon. But, back to the headline.)
That’s just “FANTASTIC!” right? I mean all the ads for fresh eye-balls that have not only never had the opportunity to have a Facebook account, but never had access to the internet, and probably never even hear of it! Oh, the money they’ll spend and the profits to be made.
Did you just have a “Wait…What?” moment there? I hope you did. If not read that last line again only slower and let it sink in. I’ll come back in a moment.
Did it hit you? For those not sure of where I’m going re-read my earlier quote above, particularly the line: “Spend (or lose) $100mm per quarter is perfectly acceptable, and even encouraged, as long as you can show 102 million eyeballs came for free.”
In that article I cavalierly made the comment that Elon Musk and Jeff Bezos would nod their head in approval. For this has become so blatantly obvious to anyone paying attention, it’s now downright comical.
Why? As I’ve been stating for years – It’s all about how to play the headline reading, algorithmic, front running, HFT, trading bots. Hint: Remember how every time it seemed Amazon™ stock valuation was questioned there was suddenly barrage of “news” about drone deliveries? All coincidence I’m sure. After all it’s not like it worked for the Fed, right?
Yet, if you want to possibly buttress the idea that maybe there’s a little more to all this “coincidence” than meets the eye or press release. Today we have no finer example for one to ponder than Mr. Musk himself in what can only be deemed as one of the most blatant examples of what I’ve coined “future-hype.” Via his Twitter™ feed. To wit:
“Just received verbal govt approval for The Boring Company to build an underground NY-Phil-Balt-DC Hyperloop. NY-DC in 29 mins.
If you want this to happen fast, please let your local & federal elected representatives know. Makes a big difference if they hear from you.
City center to city center in each case, with up to a dozen or more entry/exit elevators in each city”
Via New York City’s mayoral press secretary Eric Philips:
“This is news to City Hall.”
“also, if you’re stopping by City Hall, please bring a copy of the proposal. That would help.”
Via USATODAY™ reporter Nathan Bomey:
“I just talked to the New York MTA about this. Press aide is so flabbergasted that they’re asking me to spell Elon Musk’s name for them.”
Can you say, “It’s different this time?” Or, does one need to be shown a “picture” as the Silicon Valley aficionados likes to call them, for why this seemingly brazen, over the top claim, needed to be stated in the first place? Fair enough. Once again, to wit:
Suddenly everything about the “future” is getting questioned. Especially when it comes to all that future P/E payoff in riches. Or. said differently: “If it sounds too good to be true, maybe it is.” But we shall see, after-all…
Over the last decade there’s been no other subject more debated and central to people’s lives, than the current healthcare debacle making its way through the economy. Since the inception of what is colloquially known as Obamacare, the entire complex that was once the envy of the world seems to now be circling around the edge of some giant sinkhole before it renders itself to the forces of gravity, and finally descends into the abyss, taking everything with it in some horrifying sucking sound.
If you try to garner any information on how to solve this current debacle (and people like to gloss over this very point) from any of the so-called “smart crowd.” All one gets are mumbo-jumbo filled constructs about why the issue is so difficult to fix and more. It’s moved beyond resembling any sense of intellectual type arguing. Now – it’s pure emotional screaming, crying, and incoherent mumblings making kinder garden look scholarly in comparison. It’s beyond pathetic. Yes – on both sides.
I don’t get into politics and I’ve always stated: “You should not know which side of the political aisle I stand on if I’m making my arguments correctly.” Today is no different, for this isn’t about politics per se – this is about business, especially small business, the life blood of America , its economy, as well as the nations main employer. And the current draconian measures being thrust upon them gets little to no attention via the main stream press is not only appalling – it’s damn near criminal.
Why? Because it’s killing not only them, but with them goes, as it destroys, the areas of the economy that most people get their first leg up into the economy. This is where people looking for decent work, or chances to prove themselves, or maybe try to put back together, or reinvent from a recently shattered past or life: rebuild, relaunch, or reinvent. Sometimes themselves- sometimes the business itself. All for the better.
This is where people go apply for a job face-to-face to an owner looking for a chance as to prove their worth. Or if they can’t find one – invent one. Not send 100’s of applications to H.R. computer screening black-holes that will disqualify an applicant for not dotting some i, or crossing a t, literally.
Think: your local market, retailer, sub shop, distributor, manufacturer et al with about 50 or 100 employees give or take. The Small Business Administration has different criteria as in up to “500 employees” and more, but for this discussion, it’s about what most understand as “small.” It’s these businesses that are the dynamism for most towns.
Without the relief that was expected (and sold) to the entire small business community – it is at risk, even more so, than it already is. That alone should make politicians on both side take notice, but currently it’s like they’re (small business) screaming in a vacuum. And no one seems to care. Not the politicians, and certainly not the Chamber of Commerce.
Small business used to look to agents such as this for help in having their voices heard. But now? It’s more like lip service, then, “Have you sent in a donation?” It’s now moved beyond pathetic.
So in this vein I’m going to wave my usual fees (and I don’t do that lightly) and will now detail precisely how to fix the entire healthcare question and return it, along with its once lofty reputation, for being the best in the world. To wit:
Make all politicians, staff, along with all government employees: to have to purchase and acquire insurance plans that are available to the general public. No special provisions, no special carve-outs. If the general public can’t purchase it? Neither can a politician or other government employee. And if for any reason “insurance” or “healthcare” is part of their compensation? A stipend equivalent to, and no more than: the median or average of available plans. No work around, no exceptions. Period.
If those two solitary provisions were met – the entire healthcare/insurance fiasco would be solved at a minimum “on time”, and probably for the first time – ahead of schedule.
Everyone would benefit near immediately (and would be covered regardless of anything prior or existing) the moment the politicians had to pay, and abide, by what their constituents have, especially if full payment was only for “the median.” This would take the “median” or “average” plan standards to stratospheric heights (along with pushing down its costs via the competitive model and market) making today’s “gold” standard look more like fools-gold.
Again: Make that second item in the list above into law? America begins getting back to work far faster, and far healthier, than we have in decades.
The above is worth $Trillions, upon $Trillions of potential GDP gains along with employing many of the millions currently being forced off jobs everywhere just because they are number 50 in the employee roster. And the effects, along with affects, would be felt throughout the nation with near immediacy. All at no charge from me – and more importantly – no charge to the nation.
In fact: The only “charge” will be; what is heard from America’s business sector once the shackles of Obamacare are cast aside. Something they’ve been wanting to scream for years.
Although the Battle of Waterloo means different things to different people, one of the more widely held meanings it’s come to represent is something along the lines of a battle that one side held certain of victory, only to not only be beaten, but then lose everything they had fought for to begin with. This is what ended Napoleon, but it wasn’t for that he had no plan. On the contrary, he just believed his plan wouldn’t fail. That plan was: isolate, and annihilate, each army separately. (e.g., the Allied and Prussian armies.)
If you interchange “armies” for “business sectors”, Amazon’s strategy over the last few years seems much aligned. i.e., War against big-box retail, then all retail, media, spacecraft, and now – retail food shopping. I am of the opinion Amazon™, much like Napoleon, are going to find this battlefield has far more challenges that may end up costing them far more dearly, than they ever bargained for. Here’s why…
Unbeknownst to most, when it comes to the perishable food segment, the regulations and more (i.e., meat, dairy, et cetera) that allow what we American’s take for granted when it comes not only to variety, but for the safety and assured wholesomeness that our food supply is – it’s unlike anything most retailers outside of the industry have ever encountered. Let alone understand.
The ones whom find it the most difficult to acclimate to; are those who are all ready in the retail business (think: department store mentality) and believe it’s all just a case of applying what they know, or what they perceive as “what they know”; and switch it out using a shelf full of, let’s say toys, for a shelf full of steaks, as an example.
Many believe the only difference (an assumed difference) is that one shelf is refrigerated, yet, all the rest is the same. i.e., You have a product, a price, a label, a way to accept money for it, and a place to store back-stock. Sounds easy-peasy right? And that’s the problem, it sounds like it. But it’s anything but in the real world.
The reasons why I know this to be true is because this was the industry I made my marks in. i.e., The meat industry. And when it comes to what Amazon is going to have to contend with going forward I can speak directly to that because (using a hypothetical) when Amazon will be looking to make “deals” or “set up a supplier”, I would be the one on the other-side of the table they would need to negotiate through. And yes, I’ve actually done it, at that level. So I know intimately what I’m talking about, which is why I’m making this case.
This isn’t going to be the first time some retail behemoth decided they were going to get into the “food” market and show the industry a thing or two on how “they” believed the complex should run. It’s been done before, only to have their management sent packing arse-in-hand, shell-shocked, and mumbling for days, “WTF just happened there? Don’t they understand who we are?!” I’m referring to Walmart™ and their initial foray into groceries.
At about the turn of Y2K Walmart entered into the “supermarket” business with gusto. At the time they were gaining quite the reputation for negotiating (more like strong arming or bullying) food suppliers. (think “prepared” like: canned, or boxed product, sodas, etc., etc.) And when they were through – they set their crosshairs on the fresh meat suppliers. (think: steak, chicken, et cetera.) And it was here where they heard what seemed for the first time in response to their: “You’ll do it our way, and at our price, or no way!” demands. That response?
“Take a hike, a don’t let the door hit you on the way out. Oh, and welcome to the meat business.”
The meat industry was the only industry that (at least to my knowledge) sent Walmart reeling with no way for recourse other than to deal on meat industry terms and pricing. In other words Walmart’s “size” or “buying power” wasn’t a dominating factor that could gain leverage for discount. In fact – it could actually work against them, something considered unfathomable to its product buyers. I’ll give you a quick example to help clarify.
If a company wants to purchase 1mm widgets they can find a factory that already has supply with excess inventory if needed (or can ramp up) and negotiate a price. Simple construct for this example. Now: want to buy 1mm pounds of meat?
If there’s some available on the spot market, fine. If not? What are you going to do – make it?
You can – but – that takes well over a year. And here’s the other key – 1mm pounds how often? Daily? Weekly? Monthly? And if you begin buying all the “spot” available? Guess what? Prices may go up for you – and not your competition. For your competition may already be locked into long-term contracts. And what can be even more baffling to the uninformed is this: All your competitors will have it, as in product – and you won’t. Maybe at any price.
Again, it’s a different business. And in the end it took them (Walmart) years with a lot of painful trial and errors as to try to innovate pricing and suppliers for differentiation. Today, if you look at meat prices from their cases comparing to any other (in my opinion) they’re basically right in line with any other national retailer. You don’t see any “WOW!” type price discrepancies unless, it’s a sale item.
The above thumbnail sketch is important, because it will help explain why this, Whole Foods™/Amazon merger might come into resistance not only from the competition, or suppliers. But also – from its existing customer base.
Whole Foods (WF) has garnered the moniker “whole-paycheck” for as long as I can remember, and with good reason. As I stated, being in the food industry for most of my career, when I walk around any supermarket, it’s with a far different eye than most, especially when it comes down to pricing. And WF has never ceased to amaze me.
I am always stunned (again, all my opinion) at the prices being paid by its customers. But there’s a reason for this. And it’s not what most people think. The reason why people pay those exorbitant prices is because of what they deem as some form of “exclusivity” shopping there gives them. e.g., They are showing they can afford it.
Sure, some may say the ambience is better than most other national stores (although I would argue today, that’s far from true) and there’s certainly a different product selection than others. But that’s everywhere. But where the rubber-hits-the-road (i.e., the meat department) all I’ll say too that is: I go “WOW!!!” But not for the reasons WF would like. Which brings me to my point.
WF customers aren’t buying there because of some form of pricing structure that lends itself to discounting. In actuality – it’s the exact opposite.
There are now multiple competitors surrounding many a WF that offer the same type of “wholesomeness” implied by shopping there. One example that’s in my own area is called FreshThyme™ (FT), and I’ll use them to demonstrate my point using a friend of my wife.
Her friend shops WF, but within the last year FT opened here less than 2 miles away from her recently opened WF about a year prior. My wife took her around the store where she purchased similar items as her go-to store. But this time her bill was noticeably cheaper. And I mean much, as in even she was quite surprised. Did she switch? Has she been back there again? Answer: No. And here’s where you begin to understand where I’m going.
Why hasn’t she? Is it because she doesn’t “need” or care to save money? Again, the price differences were not nickel and dimes, but rather, dollars on many items. Was it the “2 miles away” that did it, because we’re all such creature of habit? The answer again is no, because she doesn’t even live in this town, she actually lives some 20 miles outside. But location is the key. And here’s why…
The new WF was built in what is known in my area as “Easton.” It is a very exclusive retailing area. To give you an idea, if you’re walking around the shops and suddenly you have an impulse to buy a Tesla™ after your dinner at Smith & Wollensky™, you can do just that by crossing the walkway. And if you want to celebrate that with some one-of-a-kind key ring? Tiffany™ is right there to accommodate you along with many others. All within a manageable stroll – even if you’re in heels.
Why this is important is this: You are not going to gain market share, or customers, via the discounting model. It just doesn’t work that way to this clientele. And that is an “Achilles heel” to any management team coming from a “race to the bottom” pricing model, which Amazon is. And that leads to the following for consideration.
What advantages does Amazon bring to the WF concept model? Pricing? Management? Logistics? I would argue they aren’t relevant. And actually, the mindset of current senior management at both companies are in for a culture shock that will surely be epic. Imagine the meetings that will be discussed (as in shouting matches) on why reducing prices doesn’t work, or not spending money for a key display in an effort to cut costs, not understanding (or listening to reasoning) that reducing the display purely for “cost” might reduce actual sales.
I’ve seen it happen, and I know how they turn out. All I’ll say is this: not good.
Walmart was a different animal, for they already had brick and mortar stores – adding on a grocery store to existing models was (for lack of a better term) a natural fit. But it has been anything but the slam dunk many first envisioned. Especially Walmart itself.
WF is different, for it is a stand alone market. It has to fight to get (let alone retain) every customer into its store for a specific purchase. There’s no “We’ve got TV’s, and furnishings over here, toys over there. Oh, and now you can shop for groceries also!” e.g., There is no other reason to go to WF than to buy at WF. And they don’t go there because it’s cheaper than the competition, far from it.
If the culture of Amazon doesn’t mesh properly with the now management of WF the resulting missteps that may send customers once loyal elsewhere to shop alternatives (and they’re everywhere) could unfold faster than a next day delivery. And if you’re looking for further clues of where such missteps can happen, look no further than what is currently unfolding at the Washington Post™.
Again, this is the type of “culture shock” that typically takes place when an “outsider” comes in, and its management team (along with style) tries to impose what it now deems as “policy” going forward. More often that not the backlash that result over time begins to cripple the management of both. This WF deal could add to that already mixing cauldron.
Maybe the best indication of where this might all be going comes from none other than what is surely this whole war’s leading general. e.g., Rodney McMullen, CEO of Krogers™. To wit:
“Whole Foods is a ‘good fit’ for Amazon.”
I believe Wellington said something similar as he watched Napoleon deploy his troops. But that’s pure speculation.
The optics of such a “jump” while in the midst of such a sh*t-storm at Uber, from my perspective, shows only one thing: You know the jig is up, it’s all about managing the fall, and there’s no need to do that in plain view.
If I’m wrong, then why would such a staunch defender of the company and its CEO resign when the negative optics of such a move are clearly visible? Unless? See above.”
Now this appeared yesterday afternoon at about the market’s close, from Bloomberg™, again, to wit:
“Uber Technologies Inc. shareholders and its board, led by early backer Benchmark, have discussed selling some of their shares to SoftBank Group Corp. and other potential investors, people familiar with the matter said.”
For those who may not have taken the time, nor cared, to click the link I used to note who that “closest” or should be “greatest ally” that was jumping ship was:. It was Bill Gurley of Benchmark™. And with that now makes two points I stated earlier very prescient.
Again, from the above:
“The optics of such a “jump” while in the midst of such a sh*t-storm at Uber, from my perspective, shows only one thing: You know the jig is up, it’s all about managing the fall, and there’s no need to do that in plain view.”
And the leading lines into my original article:
“There comes that moment where the veiled threats against logic such as the go-to excuse of “it’s different this time” are exposed against the harsh light of reality for all to see with such clarity, “it’s different this time” is precisely the apt statement to show why it was all fallacy to begin with.
Uber™ has just had that moment, and the resulting fallout as I’ve iterated before: Will. Be. Legend.”